USD/JPY has halted its 4-day rally, falling early on Tuesday as traders took profits. The Japanese yen found support in optimistic Japanese retail sales data.
USD/JPY rally – as it happened
The pair steadily went up last week, fuelled by a widening monetary policy gap between the Federal Reserve and the Bank of Japan.
During the economic symposium in Jackson Hole on Friday, Fed chairman Jerome Powell reiterated that the regulator does not plan to slow down the pace of interest rate increases.
Powell stated that the Federal Reserve will stick to its hawkish policy course until price stability in the US is restored.
The markets reassessed their outlooks on the pace of monetary tightening following the Fed chairman's comments. The US central bank is now expected to increase interest rates by 0.75% in September.
At the same time, the symposium showed that the Bank of Japan would not abandon its dovish stance.
Speaking in Jackson Hole, Haruhiko Kuroda, the governor of the Bank of Japan, said that the Japanese regulator would maintain its ultra-dovish policy until wages and prices would begin to grow in a stable and steady manner.
Kuroda's speech was another example of the widening interest rate gap between the US and Japan. In this scenario, USD/JPY would surge strongly.
As a result, the instrument soared early this week, testing the 24-year high in the 139 area.The rally gave support to the US dollar, pushing the US dollar index to its 20-year high at 109.40.
Why is the greenback retreating?
USD/JPY jumped yesterday during the American session and reached 139.08, its highest level since mid-July.
The US dollar found significan support in the latest consumer confidence data. According to the latest data by the Conference Board, its consumer confidence index increased to 108.80 in August, up from 95.3 in July.
However, USD retreated from its highs afterwards, and USD/JPY slid down by 0.14%.
Analysts believe that the sell-off was likely driven by traders taking profits. The US dollar still has upside potential against the Japanese yen.
USD/JPY continued to move downwards early on Wednesday, fuelled by optimistic Japanese economic data.
Retail sales in Japan rose to 2.4% year-over-year, well above the 1.5% gain recorded in July and exceeding the expected 1.9% increase.
Month-on-month sales increased by 0.8% after decreasing by 1.3% in the previous month.
USD/JPY technical analysis
The drop of USD/JPY likely followed the formation of a bearish candlestick, as well as an RSI retracement.
Today, intraday bears could try to reach the swing high of August 23 near 137.70.
However, the 10-day MA and the 3-week old support level in the 137.45-40 area will be a strong obstacle for bearish traders.
If USD/JPY falls below 137.40, the next target for bears will be 135.60–55.
The instrument will likely decrease in the short term. However, bears are unlikely to wrestle control of the market from bulls.
Bullish traders would need to keep the pair above 139 to resume the uptrend.
If the pair settles above this level, bulls will try to test the 10-year high at 139.38. From there, their next goal will be the key psychological level of 140.
